New Ventures in Financial Services

Focus on Payments and Mobile

China Mobile Buys Bank Stake

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3 March 2010

WSJ Article

Financial Times

Tremendous move by World’s largest MNO.

China Mobile Ltd. is in talks to buy a stake in Shanghai Pudong Development Bank Co., a deal that could help the wireless carrier push further into mobile e-commerce.

Expect to see more MNO/Bank tie ups globally (ex. Globe/BPI – Philippines). Banks realize that they cannot tackle the unbanked market without a partner that can profitably serve it (MNOs), MNOs realize that payment regulatory constraints mandate bank licesnses.

I expect to see more Bank-MNO “arrangements” in emerging markets as the entities that profitably serve the “unbanked” (MNOs) develop structures that provide access to non-traditional payment products which enhance the business models of both. The margins associated with the unbanked demographic are not attractive to banks (which is probably why the customers don’t have a bank account in the first place). In order for banks to support low margin payment products, they must be structurally compelled (either regulations or equity). 

In other words, few current retail or card line of business executives would take on an unbanked payment product (priced attractively to market).  There are simply better uses of capital within their existing business. For a bank to support (this low margin business), they must create a team that is structured (and compensated) to support. Given that most corporate investment processes entail selecting ideas that generate the most attractive returns, projects which would support outreach to the unbanked usually don’t make it. In the US legislators have addressed this structural planning issue with laws such as the Community Reinvestment Act (CRA).

However Emerging Markets face many challlenges in pursuing a “US Model” regulatory approach to expanding access: Banks/MNOs have a smaller “high margin” businesses which can support growth down market (20/80 vs. 80/20).  The equity/partnership approach taken by China Mobile and Globe addresses the bank structural issue and creates a common incentive for both organizations to excel in an investment area that has atypical financial performance.

Regulators in the Indian market appear to be advocating a similar approach. Banking and payment in Asia will evolve much differently than the western models. Imagine getting your paycheck, pension, social services payments all on your mobile…. instantly available… no longer will you have to take a 2 hour bus ride to your nearest agent…. and another 8 hour bus ride to go home and give your family money.

Thoughts appreciated

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Written by tomnoyes

March 3, 2010 at 10:56 pm

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